CFAS Notes
(Conceptual Framework and Accounting Standards 2022 Edition by C. Valix)
CHAPTER 17
Borrowing Costs following assets not considered as
qualifying asset:
Under PAS 23, paragraph 5, barrowing
a. Asset measured at fair value,
costs are defined as interest and other
such as biological asset.
costs that an entity incurs in
b. Inventory that is manufactured
connection with borrowing of funds.
in large quantity on a
repetitive basis, such as
Borrowing can be classified as:
maturing whisky, even if it takes
Specific borrowing is intended a substantial period of time to
specifically in acquiring a qualifying get ready for sale
asset. c. Asset that is ready for the
intended use or sale when
General borrowing is intended partly
acquired.
in acquiring a qualifying asset and
partly for general or working capital Accounting for borrowing cost
purposes.
PAS 23, paragraph 8, mandates the
following rules on borrowing cost:
Qualifying Asset
1. The capitalization of borrowing
A qualifying asset is an asset that cost is mandatory for a
necessarily takes a substantial period qualifying asset.
of time to get ready for the intended 2. If the borrowing is not directly
use or sale. attributable to a qualifying
asset, the borrowing cost is
Examples include the following:
expensed immediately.
a. Manufacturing plant
Asset financed by specific
b. Power generation facility
borrowing
c. Intangible asset
d. Investment property PAS 23, paragraph 12, provides that if
the funds are borrowed specifically
PAS 23 requires that borrowing costs
for the purpose of acquiring a
incurred in connection with acquisition
qualifying asset, the amount of
of a qualifying asset should be
capitalizable borrowing cost is the
capitalized as cost of the qualifying
actual borrowing cost incurred
asset.
during the period less any
investment income from the
temporary investment of those
Excluded from the capitalization borrowings.
PAS 23 does not require capitalization Asset financed by general
of borrowing costs relating to the borrowing
PAS 23, paragraph 14, provides that if qualifying asset for the intended use
the funds are borrowed generally and or sale are complete.
used for acquiring a qualifying asset,
An asset is normally ready for the
the amount of capitalizable borrowing
intended use or sale when the
cost is equal to the average carrying
physical construction of the asset
expenditures on the asset during
is complete.
the period multiplied by a
capitalization rate or average Disclosures related to borrowing costs
interest rate.
a. The amount of borrowing costs
However, the capitalizable borrowing cost capitalized during the period.
shall not exceed the actual interest b. The capitalization rate used to
incurred.
determine the amount of
The capitalization rate or average borrowing costs eligible for
interest rate is equal to the total capitalization.
annual borrowing cost divided by the
Segregation of assets that are
total general borrowings outstanding
"qualifying assets" from other assets is
during the period.
not required to be disclosed.
No specific guidance is provided
for general borrowing with respect
to investment income.
Accordingly, any investment income
from general borrowing is not
deducted from capitalizable
borrowing cost.
Commencement of capitalization
The capitalization of borrowing costs
as part of the cost of a qualifying asset
shall commence when the following
three conditions are present:
1. When the entity incurs
expenditures for the asset.
2. When the entity incurs
borrowing costs.
3. When the entity undertakes
activities that are necessary to
prepare the asset for the
intended use or sale.
Cessation of capitalization
Capitalization of borrowing costs shall
cease when substantially all the
activities necessary to prepare the
